We study the effects of corruption on the capital structures of firms in 72 countries. Using the
Corruption Perception Index, we show that corruption increases the costs of debt and equity.
Interestingly, as the level of corruption decreases, these costs become more sensitive to changes in
corruption. Similarly, the capital structure adjustment speeds exhibit a non-linear dynamic. These
results indicate that for the most corrupt countries, it is necessary to engage in corruption reduction
efforts to get past a minimum threshold before they can affect the behaviors of firms. Additionally,
the least corrupt countries need to remain vigilant against increases in corruption